Level 3 Buys Global Crossing, Expands into New Continents

Two currently unprofitable communication providers will soon combine their efforts to survive in the marketplace.

Two currently unprofitable communication providers will soon combine their efforts to survive in the marketplace. Specifically, Level 3 Communications acquires the IP solutions company Global Crossing. Level 3 is reportedly buying Global Crossing for $3 billion, minus the $1.2 billion in debt that Global Crossing has accumulated. It is the third largest acquisition of the 170 telecommunications-service space acquisitions in the last three years.

So why pay $3 billion for a company to get nearly half of that back in debt? A few reasons. The first is that Global Crossing will give Level 3 clients across the Pacific Ocean and in Latin America — two regions that Level 3 has yet to penetrate. Global Crossing will also grow Level 3’s client base in Level 3’s two current service areas — the U.S. and Europe. All told, the two companies will have have established networks in 50 countries and be able to serve 70 countries worldwide.

Another reason is that — when combining their services — the two companies will be able to offer a unique local, national and global range of services. According to Level 3’s press release, the new combined company will offer enterprise, government, wholesale, content and web-based customers a comprehensive portfolio of end-to-end data, video and voice solutions. Level 3’s current CEO Jim Crowe will now head the combined company.

“The complementary fit between the two companies’ networks, service portfolios and customers is compelling,” said Crowe in the above-mentioned company release. “By leveraging the respective strengths and extensive reach of both companies, we are creating a highly efficient and more extensive global platform that is well-positioned to meet the local and international needs of our customers.”

Donna Jaegers from DA Davidson & CO — the largest investment firm in the northeastern United States — said the merger is long overdue. “This is what telecom has needed for a long time. You have way too many players.” Jaegers predicts that XO Holdings — the enterprise IT company — is the next target acquisition for Level 3.

Both level 3 and Global Crossing have experienced past financial woes. Level 3 dodged bankruptcy in 2002 thanks to a $500 million investment from billionaire investor Warren Buffett and two of his partners. In that same year Global Crossing was not so lucky. The company filed for bankruptcy in January of ’02. Since announcement of the acquisition, Bloomberg reports that Level 3’s stock has shot up by 12 percent.

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